BILL NUMBER: AB 2403	CHAPTERED  09/30/00

	CHAPTER   968
	FILED WITH SECRETARY OF STATE   SEPTEMBER 30, 2000
	APPROVED BY GOVERNOR   SEPTEMBER 29, 2000
	PASSED THE ASSEMBLY   AUGUST 21, 2000
	PASSED THE SENATE   AUGUST 18, 2000
	AMENDED IN SENATE   JULY 5, 2000
	AMENDED IN SENATE   JUNE 22, 2000
	AMENDED IN ASSEMBLY   MAY 3, 2000
	AMENDED IN ASSEMBLY   APRIL 10, 2000

INTRODUCED BY   Assembly Member Maddox

                        FEBRUARY 24, 2000

   An act to amend Sections 50003, 50204, 50302, 50314, and 50401 of
the Financial Code, relating to residential mortgage lending.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2403, Maddox.  Residential mortgage lending.
   Existing law, the California Residential Mortgage Lending Act,
prohibits a licensee from engaging in certain acts regarding the
disbursement of mortgage loan proceeds, the amount of the closing
fees charged, and other matters.
   This bill would prohibit a licensee from requiring a borrower to
pay interest on a mortgage loan for a period in excess of one day
prior to the recording of the mortgage, with certain exceptions based
on the day agreed to for the recording.
   Existing law sets annual assessments to be paid to the
commissioner by licensees based on a pro rata share of total
administrative costs to operate the program and a percentage of the
income of each licensee.  Existing law requires licensees to pay the
cost of all nonroutine examinations by the commissioner.
   This bill would remove obsolete portions of the assessment
provisions.  This bill would revise the time and method for
determining the annual assessments to be paid by licensees.  This
bill would require licensees to pay the cost of all examinations by
the commissioner.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 50003 of the Financial Code is amended to read:

   50003.  (a) "Annual audit" means a certified audit of the licensee'
s books, records, and systems of internal control performed by an
independent certified public accountant in accordance with generally
accepted accounting principles and generally accepted auditing
standards.
   (b) "Borrower" means the loan applicant.
   (c) "Buy" includes exchange, offer to buy, or solicitation to buy.

   (d) "Commissioner" means the Commissioner of Corporations.
   (e) "Control" means the possession, directly or indirectly, of the
power to direct, or cause the direction of, the management and
policies of a licensee under this division, whether through voting or
through the ownership of voting power of an entity that possesses
voting power of the licensee, or otherwise.  Control is presumed to
exist if a person, directly or indirectly, owns, controls, or holds
10 percent or more of the voting power of a licensee or of an entity
that owns, controls, or holds, with power to vote, 10 percent or more
of the voting power of a licensee.  No person shall be deemed to
control a licensee solely by reason of his or her status as an
officer or director of the licensee.
   (f) "Engage in the business" means the dissemination to the
public, or any part of the public, by means of written, printed, or
electronic communication or any communication by means of recorded
telephone messages or spoken on radio, television, or similar
communications media, of any information relating to the making of
residential mortgage loans, the servicing of residential mortgage
loans, or both.  "Engage in the business" also means, without
limitation, making residential mortgage loans or servicing
residential mortgage loans, or both.
   (g) "Exempt person" means any of the following:
   (1) Any bank, trust company, insurance company, or industrial loan
company doing business under the authority of or in accordance with
a license, certificate, or charter issued by the United States or any
state, district, territory, or commonwealth of the United States
that is authorized to transact business in this state.
   (2) A federally chartered savings and loan association, federal
savings bank, or federal credit union that is authorized to transact
business in this state.
   (3) A savings and loan association, savings bank, or credit union
organized under the laws of this or any other state that is
authorized to transact business in this state.
   (4) A person engaged solely in business, commercial, or
agricultural mortgage lending.
   (5) A wholly owned service corporation of a savings and loan
association or savings bank organized under the laws of this state or
the wholly owned service corporation of a federally chartered
savings and loan association or savings bank that is authorized to
transact business in this state.
   (6) Any person making residential mortgage loans with his, her, or
its own funds for his, her, or its own investment without intent to
resell more than eight residential loans in any one calendar year.
   (7) An agency, or other instrumentality of the federal government,
or state or municipal government.
   (8) An employee or employer pension plan making residential
mortgage loans only to its participants, or a person making those
loans only to its employees or the employees of a holding company,
owner who controls that person, affiliate, or subsidiary of that
person.
   (9) A person acting in a fiduciary capacity conferred by the
authority of a court.
   (10) A real estate broker licensed under California law, when
making, arranging, selling, or servicing a residential loan.
   (11) A California finance lender licensed under Division 9
(commencing with Section 22000), when acting under the authority of
that license.
   (12) A trustee under a deed of trust pursuant to the Civil Code,
when collecting delinquent loan payments, interest, or other loan
amounts, or performing other acts in a judicial or nonjudicial
foreclosure proceeding.
   (h) "In this state" means any activity of a person relating to
making or servicing a residential mortgage loan that originates from
this state and is directed to persons outside this state, or that
originates from outside this state and is directed to persons inside
this state, or that originates inside this state and is directed to
persons inside this state, or that leads to the formation of a
contract and the offer or acceptance thereof is directed to a person
in this state (whether from inside or outside this state and whether
the offer was made inside or outside the state).
   (i) "Institutional investor" means the following:
   (1) The United States or any state, district, territory, or
commonwealth thereof, or any city, county, city and county, public
district, public authority, public corporation, public entity, or
political subdivision of a state, district, territory, or
commonwealth of the United States, or any agency or other
instrumentality of any one or more of the foregoing, including, by
way of example, the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation.
   (2) Any bank, trust company, savings bank or savings and loan
association, credit union, industrial bank or industrial loan
company, personal property broker, consumer finance lender,
commercial finance lender, or insurance company, or subsidiary or
affiliate of one of the preceding entities, doing business under the
authority of or in accordance with a license, certificate, or charter
issued by the United States or any state, district, territory, or
commonwealth of the United States.
   (3) Trustees of pension, profit-sharing, or welfare funds, if the
pension, profit-sharing, or welfare fund has a net worth of not less
than fifteen million dollars ($15,000,000), except pension,
profit-sharing, or welfare funds of a licensee or its affiliate,
self-employed individual retirement plans, or individual retirement
accounts.
   (4) A corporation or other entity with outstanding securities
registered under Section 12 of the Securities Exchange Act of 1934 or
a wholly owned subsidiary of that corporation or entity, provided
that the purchaser represents either of the following:
   (A) That it is purchasing for its own account for investment and
not with a view to, or for sale in connection with, any distribution
of a promissory note.
   (B) That it is purchasing for resale pursuant to an exemption
under Rule 144A (17 C.F.R. 230.144A) of the Securities and Exchange
Commission.
   (5) An investment company registered under the Investment Company
Act of 1940; or a wholly owned and controlled subsidiary of that
company, provided that the purchaser makes either of the
representations provided in paragraph (4).
   (6) A person licensed to make residential mortgage loans under
this law or an affiliate or subsidiary of that person.
   (7) Any person who is licensed as a securities broker or
securities dealer under any law of this state, or of the United
States, or any employee, officer or agent of that person, if that
person is acting within the scope of authority granted by that
license or an affiliate or subsidiary controlled by that broker or
dealer, in connection with a transaction involving the offer, sale,
purchase, or exchange of one or more promissory notes secured
directly or indirectly by liens on real property or a security
representing an ownership interest in a pool of promissory notes
secured directly or indirectly by liens on real property, and the
offer and sale of those securities is qualified under the California
Corporate Securities Law of 1968 or registered under federal
securities laws, or exempt from qualification or registration.
   (8) A licensed real estate broker selling the loan to an
institutional investor specified in paragraphs (1) to (7), inclusive,
or paragraph (9) or (10).
   (9) A business development company as defined in Section 2(a)(48)
of the Investment Company Act of 1940 or a Small Business Investment
Company licensed by the United States Small Business Administration
under Section 301(c) or (d) of the Small Business Investment Act of
1958.
   (10) A syndication or other combination of any of the foregoing
entities that is organized to purchase a promissory note.
   (11) A trust or other business entity established by an
institutional investor for the purpose of issuing or facilitating the
issuance of securities representing undivided interests in, or
rights to receive payments from or to receive payments primarily
from, a pool of financial assets held by the trust or business
entity, provided that all of the following apply:
   (A) The business entity is not a sole proprietorship.
   (B) The pool of assets consists of one or more of the following:
   (i) Interest-bearing obligations.
   (ii) Other contractual obligations representing the right to
receive payments from the assets.
   (iii) Surety bonds, insurance policies, letters of credit, or
other instruments providing credit enhancement for the assets.
   (C) The securities will be either one of the following:
   (i) Rated as "investment grade" by Standard and Poor's Corporation
or Moody's Investors Service, Inc. "Investment grade" means that the
securities will be rated by Standard and Poor's Corporation as AAA,
AA, A, or BBB or by Moody's Investors Service, Inc. as Aaa, Aa, A, or
Baa, including any of those ratings with "+" or "-" designation or
other variations that occur within those ratings.
   (ii) Sold to an institutional investor.
   (D) The offer and sale of the securities is qualified under the
California Corporate Securities Law of 1968 or registered under
federal securities laws, or exempt from qualification or
registration.
   (j) "Institutional lender" means the following:
   (1) The United States or any state, district, territory, or
commonwealth thereof, or any city, county, city and county, public
district, public authority, public corporation, public entity, or
political subdivision of a state, district, territory, or
commonwealth of the United States, or any agency or other
instrumentality of any one or more of the foregoing, including, by
way of example, the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation.
   (2) Any bank, trust company, savings bank or savings and loan
association, credit union, industrial loan company, or insurance
company, or service or investment company that is wholly owned and
controlled by one of the preceding entities, doing business under the
authority of and in accordance with a license, certificate, or
charter issued by the United States or any state, district,
territory, or commonwealth of the United States.
   (3) Any corporation with outstanding securities registered under
Section 12 of the Securities Exchange Act of 1934 or any wholly owned
subsidiary of that corporation.
   (4) A person licensed to make residential mortgage loans under
this law.
   (k) "Law" means the California Residential Mortgage Lending Act.
   (l) "Lender" means a person that (1) is an approved lender for the
Federal Housing Administration, Veterans Administration, Farmers
Home Administration, Government National Mortgage Association,
Federal National Mortgage Association, or Federal Home Loan Mortgage
Corporation, (2) directly makes residential mortgage loans, and (3)
makes the credit decision in the loan transactions.
   (m) "Licensee" means, depending on the context, a person licensed
under either Chapter 2 (commencing with Section 50120) or Chapter 3
(commencing with Section 50130).
   (n) "Makes or making residential mortgage loans" or "mortgage
lending" means processing, underwriting, or as a lender using or
advancing one's own funds, or making a commitment to advance one's
own funds, to a loan applicant for a residential mortgage loan.
   (o) "Mortgage loan," "residential mortgage loan," or "home
mortgage loan" means a federally regulated mortgage loan as defined
in Section 3500.2 of Title 24 of the Code of Federal Regulations, or
a loan made to finance construction of a one to four family dwelling.

   (p) "Mortgage servicer" or "residential mortgage loan servicer"
means a person that (1) is an approved servicer for the Federal
Housing Administration, Veterans Administration, Farmers Home
Administration, Government National Mortgage Association, Federal
National Mortgage Association, or Federal Home Loan Mortgage
Corporation, and (2) directly services or offers to service mortgage
loans.
   (q) "Net worth" has the meaning set forth in Section 50201.
   (r) "Own funds" means (1) cash, corporate capital, or warehouse
credit lines at commercial banks, savings banks, savings and loan
associations, industrial loan companies, or other sources that are
liability items on a lender's financial statements, whether secured
or unsecured, or (2) a lender's affiliate's cash, corporate capital,
or warehouse credit lines at commercial banks or other sources that
are liability items on the affiliate's financial statements, whether
secured or unsecured.  "Own funds" does not include funds provided by
a third party to fund a loan on condition that the third party will
subsequently purchase or accept an assignment of that loan.
   (s) "Person" means a natural person, a sole proprietorship, a
corporation, a partnership, a limited liability company, an
association, a trust, a joint venture, an unincorporated
organization, a joint stock company, a government or a political
subdivision of a government, and any other entity.
   (t) "Residential real property" or "residential real estate" means
real property located in this state that is improved by a
one-to-four family dwelling.
   (u) "Service" or "servicing" means receiving more than three
installment payments of principal, interest, or other amounts placed
in escrow, pursuant to the terms of a mortgage loan and performing
services by a licensee relating to that receipt or the enforcement of
its receipt, on behalf of the holder of the note evidencing that
loan.
   (v) "Sell" includes exchange, offer to sell, or solicitation to
sell.
  SEC. 2.  Section 50204 of the Financial Code is amended to read:
   50204.  A licensee may not do any of the following:
   (a) Disburse the mortgage loan proceeds in a form other than
direct deposit to the borrower's or borrower's designee's account,
wire, bank or certified check, ACH funds transfer, or attorney's
check drawn on a trust account.  An entity may apply to the
commissioner for a waiver of the requirements of this subdivision by
demonstrating, in a letter application, that it has adopted or will
adopt another method of disbursement of loan proceeds that will
satisfy the purposes of this subdivision.
   (b) Fail to disburse funds in accordance with a commitment to make
a mortgage loan that is accepted by the applicant.
   (c) Accept fees at closing that are not disclosed to the borrower
on the federal HUD-1 Settlement Statement.
   (d) Commit an act in violation of Section 2941 of the Civil Code.

   (e) Obtain or induce an agreement or other instrument in which
blanks are left to be filled in after execution.
   (f) Intentionally delay closing of a mortgage loan for the sole
purpose of increasing interest, costs, fees, or charges payable by
the borrower.
   (g) Engage in fraudulent home mortgage underwriting practices.
   (h) Make payment of any kind, whether directly or indirectly, to
an in-house or fee appraiser of a government or private money lending
agency, with which an application for a home mortgage has been
filed, for the purpose of influencing the independent judgment of the
appraiser with respect to the value of real estate that is to be
covered by the home mortgage.
   (i) Engage in any acts in violation of Section 17200 or 17500 of
the Business and Professions Code.
   (j) Knowingly misrepresent, circumvent, or conceal, through
subterfuge or device, any material aspect or information regarding a
transaction to which it is a party.
   (k) Do an act, whether of the same or a different character than
specified in this section, that constitutes fraud or dishonest
dealings.
   (l) Sell more than eight loans in a calendar year made under the
authority of this license to a person who is not an institutional
investor.
   (m) Commit an act in violation of Section 1695.13 of the Civil
Code.
   (n) Make or service a loan that is not a residential mortgage loan
under the authority of the license.
   (o) Require a borrower to pay interest on the mortgage loan for a
period in excess of one day prior to recording of the mortgage or
deed of trust.  Notwithstanding the foregoing, if the borrower
affirmatively requests, and the lender agrees, that the recording
will occur on Monday, or a day immediately following a bank holiday,
interest may commence to accrue on the business day immediately
preceding the day of recording, provided the following is disclosed
to the borrower in writing:  (1) the amount of additional per diem
interest charged to accommodate recording on Monday or the day
following a holiday, as the case may be, and (2) that it may be
possible to avoid the additional per diem interest charge by
recording the loan or deed of trust on a day immediately following a
business day.  This disclosure shall be provided to the borrower when
the parties establish the recording date, and the borrower shall
acknowledge the additional interest charge by signing the disclosure
instrument.
  SEC. 3.  Section 50302 of the Financial Code is amended to read:
   50302.  (a) As often as the commissioner deems necessary and
appropriate, but at least once every 48 months, the commissioner
shall examine the affairs of each licensee for compliance with this
division.  The commissioner shall appoint suitable persons to perform
the examination.  The commissioner and his or her appointees may
examine the books, records, and documents of the licensee, and may
examine the licensee's officers, directors, employees, or agents
under oath regarding the licensee's operations.  The commissioner may
cooperate with any agency of the state or federal government, other
states, agencies, the federal national mortgage association, or the
federal home loan mortgage corporation.  The commissioner may accept
an examination conducted by one of these entities in place of an
examination by the commissioner under this law, unless the
commissioner determines that the examination does not provide
information necessary to enable the commissioner to fulfill his or
her responsibilities under this division.
   (b) The commissioner shall provide a written statement of the
findings of the examination, issue a copy of that statement to each
licensee's principals, officers, or directors, and take appropriate
steps to ensure correction of any violations of this division.
   (c) Affiliates of a licensee are subject to examination by the
commissioner on the same terms as the licensee, but only when reports
from, or examination of, a licensee provides documented evidence of
unlawful activity between a licensee and affiliate benefiting,
affecting, or arising from the activities regulated by this division.

   (d) The licensee shall pay, and the commissioner shall assess, the
reasonable expenses of any examination of the licensee  and
affiliates, consistent with the requirements of subdivision (c) of
Section 50314.
   (e) The statement of the findings of an examination shall belong
to the commissioner and shall not be disclosed to anyone other than
the licensee, law enforcement officials, or other state or federal
regulatory agencies for further investigation and enforcement.
Reports required of licensees by the commissioner under this division
and results of examinations performed by the commissioner under this
division are the property of the commissioner.
  SEC. 4.  Section 50314 of the Financial Code is amended to read:
   50314.  (a) Every person subject to this division shall keep
documents and records that will properly enable the commissioner to
determine whether the residential mortgage lending or residential
mortgage loan servicing functions performed by that person comply
with the provisions of this division and with all rules and orders
made by the commissioner under this division.  Upon request of the
commissioner, residential mortgage lenders and residential mortgage
loan servicers shall file an authorization for disclosure to the
commissioner of financial records of the licensed business pursuant
to Section 7473 of the Government Code.
   (b) The business documents and records of every residential
mortgage lender or residential mortgage loan servicer, whether
required to be licensed under this division or not, are subject to
inspection and examination by the commissioner at any time without
prior notice.  The provisions of this subdivision shall not apply to
persons specified in subdivision (g) of Section 50003.
   Any person subject to this division shall, upon request and within
the time specified in the request, allow inspection and copying of
any documents and records by the commissioner or his or her
authorized representative.
   (c) The cost of every inspection and examination of a licensee or
other person subject to this division shall be paid to the
commissioner by the licensee or person examined, and the commissioner
may maintain an action for the recovery of these costs in any court
of competent jurisdiction.  In determining the cost of any inspection
or examination, the commissioner may use the estimated average
hourly cost, including overhead, for all persons performing
inspections or examinations of licensees or other persons subject to
this division for the fiscal year.
   For the purpose of this subdivision only, no person other than a
licensee shall be deemed to be a person subject to this division
unless and until the person is determined to be a person subject to
this division by an administrative hearing in accordance with Chapter
5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2
of the Government Code, or by a judicial hearing in any court of
competent jurisdiction.
   (d) Investigation and examination reports prepared by the
commissioner's duly designated representatives are not public
reports.  Those reports may be disclosed to the officers or directors
of a licensee that is the subject of the report for the purpose of
corrective action by the officers or directors.  Such a disclosure
shall not operate as a waiver of the exemption specified in
subdivision (d) of Section 6254 of the Government Code.
  SEC. 5.  Section 50401 of the Financial Code is amended to read:
   50401.  (a) In addition to other fees and reimbursements required
to be paid under this division, each licensee shall pay to the
commissioner an amount equal to the lesser of:  (1) its pro rata
share of all costs and expenses (including overhead and the
maintenance of a prudent reserve not to exceed 90 days' costs and
expenses) that the commissioner reasonably expects to incur in the
current fiscal year in the administration of this division and not
otherwise recovered by the commissioner under this division or from
the State Corporations Fund, plus a deficit or less a surplus
actually incurred during the prior fiscal year; or (2) five thousand
dollars ($5,000).  The pro rata share shall be the greater of either
one thousand dollars ($1,000) or the sum of:  (A) a number derived
from the ratio of the aggregate principal amount of the mortgage
loans secured by residential real property originated by the licensee
to all mortgage loans secured by residential real property
originated by all licensees under this division, as shown by the
annual financial reports to the commissioner, which number is then
multiplied by one-half of the costs and expenses estimated by the
commissioner for the current fiscal year; plus (B) a number derived
from the ratio of the average value of mortgage loans secured by
residential real property serviced by a licensee to the average value
of all mortgage loans secured by residential real property serviced
by all licensees under this division, as shown by the annual
financial reports to the commissioner, which number is then
multiplied by one-half of the costs and expenses estimated by the
commissioner for the current fiscal year.  For the purposes of this
section, the "principal amount" of a mortgage loan means the initial
total amount a borrower is obligated to repay the lender and the
"average value" of loans serviced means the sum of the aggregate
dollar value of all mortgage loans secured by residential real
property serviced by a licensee, calculated as of the last day of
each month in the calendar year just ended, divided by 12.
   In order for the commissioner to calculate the assessment under
this section, each licensee shall file an annual report for the
calendar year just ended containing the information required by the
commissioner on or before March 1 of the year in which the assessment
is to be calculated.
   In determining the amount assessed, the commissioner shall
consider all appropriations from the State Corporations Fund for the
support of this division and all reimbursements provided for under
this division.
   (b) In no case shall the reimbursement, payment, or other fee
authorized by this section exceed the cost, including overhead,
reasonably incurred in the administration of this division, and the
maintenance of a prudent reserve not to exceed 90 days' costs and
expenses.
   (c) On or before the 30th day of September in each year, the
commissioner shall notify each licensee by mail of the amount
assessed and levied against it and that amount shall be paid within
20 days.  If payment is not made within 20 days, the commissioner
shall assess and collect a penalty, in addition to the assessment of
1 percent of the assessment for each month or part of a month that
the payment is delayed or withheld.
   (d) If a licensee fails to pay the assessment on or before the
30th day following the day upon which payment is due, the
commissioner may by order summarily suspend or revoke the license
issued to the licensee.  An order issued under this section is not
stayed by the filing of a request for a hearing.  If, after an order
is made, the request for hearing is filed in writing within 15 days
from the date of service of the order and a hearing is not held
within 60 days of the filing, the order is deemed rescinded as of its
effective date.  During a period when its license is revoked or
suspended, a licensee shall not conduct business pursuant to this
division except as may be permitted by further order of the
commissioner.  However, the revocation, suspension, or surrender of a
license                                               shall not
affect the powers of the commissioner as provided in this division.
